Other Industry Lease Forms

The mineral rights granted to the Hudson’s Bay Company and the Canadian Pacific Railway Company in the southern portions of the prairie provinces during the 1800’s (see “About Freehold Mineral Rights”) have come to be held by a number of large energy companies. In other instances large energy companies have purchased freehold mineral rights from individual freehold owners. These companies prescribe the form of lease agreement under which their mineral rights may be leased to other industry operators.

Below are the default clauses found in the leases prescribed by two of the most active energy companies in western Canada:

“Without in any way restricting any other rights and remedies which the Lessor may have in the case of the breach or non-observance or non-performance on the part of the Lessee of any covenant, provisio, condition, restriction or stipulation in this Lease contained, the Lessor may give to the Lessee written notice requiring the Lessee to remedy such default and if the Lessee fails to remedy such default within a period of thirty (30) days from the receipt of such notice, this Lease shall thereupon terminate and it shall be lawful for the Lessor, into and upon the demised estate (or any part thereof in the name of the whole) to re-enter and the same to have again, repossess and enjoy, anything in this Lease contained to the contrary notwithstanding, and, should the Lessor so elect by notice to the Lessee within thrity (30) days of exercising this right, all wells which the Lessee may have drilled on the said lands, including all tools, machinery, buildings and erections which the lessee may have placed on the said lands, shall become the property of the Lessor free and clear of any claim or interest of the Lessee and the Lessee shall assign, without consideration, the surface rights of the said lands to the Lessor ...”

2007 Canadian Natural Resources Limited Lease

“Without in any way restricting any other rights and remedies which the Lessor may have in the case of the breach or non-observance or non-performance on the part of the Lessee of any covenant, proviso, condition, restriction or stipulation in this Lease contained, (the “Default”) the Lessor may give to the Lessee written notice requiring the Lessee to remedy such Default within a period of thirty (30) days from the receipt of such notice, or, in the case of a Default which requires more than thirty (30) days to remedy, if the Lessee fails to commence to remedy such Default within a period of thirty (30) days from the receipt of such notice and thereafter diligently continue in its best efforts until such Default has been completely remedied, this Lease shall thereupon terminate and it shall be lawful for the Lessor, to enter into and upon the Demised Estate (or any part thereof in the name of the whole), to re-enter and the same to have again, repossess and enjoy, anything in this Lease contained to the contrary notwithstanding, and should the Lessor so elect by notice to the Lessor within thirty (30) days of exercising this right, any or all wells which the Lessee may have drilled on the Said Lands, including all tools, machinery, buildings, erections, equipment and materials (the “Equipment”) which the Lessee may have placed on the Said Lands for the express purpose of producing Leased Substances shall become the property of the Lessor free and clear of any claim or interest of the Lessee and the Lessee shall assign to the Lessor without consideration, the wellbore(s), the Equipment, the surface rights of the Said Lands and any regulatory permits or licenses which the Lessor may request ..."

2009 EnCana Corporation Lease

In both instances, if the lessee fails to remedy or commence to remedy a default within thirty (30) days of receipt of a default notice, the clauses provide for the lease to terminate and for the owner-lessor to have the right to acquire all of the lessee’s wells and well equipment at no cost.

In CAPL leases the default clause provides the energy company-lessee with the option of either commencing to remedy an alleged breach or initiating a legal action to determine whether a breach has occurred within thirty (30) days of receipt of a default notice. If the lessee opts for litigation and the courts determine that a breach has occurred, then the lessee has 30 days after a final judicial decision to commence to remedy the breach. If there are wells which are producing or are capable of producing on the freeholder’s lands or lands pooled or unitized therewith, the freeholder’s remedy for any default is limited to damages and the lease does not terminate. The freeholder has no right to acquire any wells or equipment.

The other clauses in the leases prescribed by energy companies are similarly much more protective of the owner-lessor.

Two points are relevant:

Firstly, energy companies that own mineral rights do not use their own forms of lease agreement when they lease mineral rights from individual freehold owner; they use CAPL leases or amended CAPL leases.

Secondly, the same energy companies that refuse to accept even the modestly lessor protective amendments which FHOA recommends, accept the much more onerous terms in the lease agreements prescribed by Canadian Natural, EnCana and other corporate owners of mineral rights.